December 21, 2016

Important Details

Before we button up the year, check our list twice, and head out for the holidays, we’ve reviewed the most significant headlines of 2016 and what they mean for the year ahead. What a tradition this has become, and one that confirms, with no shortage of events, our stance from over a year ago that 2016 would be the year of the Tipping Point.

In no particular order:

1) Copyright Pressures Intensify: Sci-Hub, a pirate site for scholarly literature that offers free access to upwards of 47 million scientific and scholarly papers, generated heated debates and lawsuits. It also forced the conversation about copyright, publisher prices, open access, and open science. Regardless of its means, which we don’t condone, it is a genie no one can put back into the bottle, and its movement speaks volumes. In parallel, President Obama appointed Carla Hayden as the new librarian of Congress, and in her first public act, she removed Maria Pallante as US Register of Copyrights. The move generated widespread speculation about the motivations behind it and the future of US copyright policy under a Google friendly regime. This, all before Trump. Google was highly invested in a Clinton win, so we’ll watch closely to see how Google friendly the Trump administration will be.

2) IBM Acquires Truven: The February announcement helped paint a picture that portrays IBM, once and for all, as a content company and a computing behemoth that’s leading the way into the cognitive era. In early 2000, the company vowed it would never go beyond an application layer. Now, not only has it gone up the application chain, it has also gone full on into content ownership with the Truven asset joining The Weather Channel and more data assets undoubtedly to come. As IBM becomes a cognitive platform for large enterprise, it begs a few questions. Where will they draw the content line? Will they, at some point, become a platform for much more licensed and proprietary data for the enterprise? Will that become a true, one-stop shop for customers seeking an easy solution that finally integrates internal, third-party licensed, and free data that helps them become cognitive enterprises themselves? We believe the answers to these questions are yes and look to 2017 as IBM’s future unfolds.

3) Microsoft Buys LinkedIn: Another big-bang approach to owning the enterprise focused on identity and unity this time. LinkedIn is big-time social and mobile — two areas that Microsoft had failed miserably at in the past — and has a highly targeted ad presence. Seattle gains access to LinkedIn’s deterministic data on business professionals and its native in-feed ad units through Sponsored Updates and In-Mail. This comes after Microsoft gave away its much less focused ad business to AOL/Verizon in 2015. LinkedIn will connect profile data to Microsoft’s CRM, providing better identity to open up social selling, business intelligence, competitive intelligence, personal development, and hiring to customers of its ecosystem. The acquisition helps connect the dots between Office and Microsoft’s school education activities, too. The deal provides a link into professional development, potentially boosting the use of Office for corporate study and research activities. It also positions LinkedIn as the place for professionals to create a portfolio of qualifications, starting at school, progressing though university, and on into corporate life, demonstrating the holy grail of convergence. LinkedIn may also become a platform that societies license deeper training content into, and the deal provides an example of what’s possible for B2B players to emulate, but with deep vertical focus.

4) McGraw-Hill Sells J.D. Power & Informa Buys Penton while Thomson Reuters Sells Clarivate Analytics: These three deals cement the debate between companies moving to focused scale while others maintain a diversified portfolio. The debate about what happens in a pure-play environment when markets or the economy turns and an entire sector goes south continues. McGraw-Hill and Thomson Reuters are two of many large companies in our industry who have continued to add and divest assets to force focus on a single sets of markets. Informa, on the other hand, continues to double-down on diversity, looking to integrate assets into combined solutions for multiple verticals.

The B2B market remains fragmented, but Informa's purchase of Penton improves their already strong position in the exposition market, as well as enhances their conference and business intelligence divisions. In a single purchase, Informa enhanced its role in all three lines of business. What happens in the next downturn will generate significant takeaways, as we compare and contrast whether diversity of margins is more advantageous than a diversity of content types and markets. UBM’s acquisition of AllWorld paints a similar pure-play move — deeper into exhibitions and regions with an emphasis on underlying data that drives the trade show engine. Will Daily Mail and General Trust get with the de-conglomeration movement? We think not, but say they are ripe to do so.

5) Journalism Goes Into Crisis: Journalism, already imperiled by the loss of its economic base, faced threats to its societal function by public loss of faith following this year’s US presidential election, Brexit, fake news, state-sponsored propaganda, Russia's release of private emails on WikiLeaks, and unparalleled use of Twitter by a US president-elect who is a master at playing the media game by gaming the media.

Media (and polling) must rethink their role in a world where citizens view all media with growing suspicion and hostility. All this at a time when Facebook became a reluctant media company, recognizing that with its advertising footprint, role as an aggregator and amplifier of news, and influence on public discourse (and the metrics that go with all of it), it must and is expected to follow rules it didn’t create. Just yesterday, the WSJ reported (pay wall) that they are reluctantly stepping into fact-checking, a sure sign they’re waking up to the debacle created on their platform and the responsibilities that come with its role as a media company. They’ve also announced more moves to secure their own video content, and it’s clear they now know what we’ve said all along: Facebook is one of the largest media companies in the world, if not the largest.

This comes while video continues to explode, as just about every other media organization got into the video business to harvest monies from video advertising. Autoplay video became the norm on many video sites. Video is expensive, and the long-term path is uncertain, but video is being consumed, more and more, away from traditional networks. Finally, the hit on journalism landed on Twitter when it took a bath on its sale and couldn’t figure out how to scale more users and better monetize what it does despite one thing we know for sure: Kim Kardashian and President-elect Trump love it.

6) Elephants Can Dance: Building off the famous book by Lou Gerstner, Springer Nature’s SharedIt announcement proves that our industry’s largest companies can still innovate. It’s a great example of a big, traditional publisher responding and reacting to innate researcher behavior (i.e., sharing articles) in a really pragmatic way. We love the way they approached it — a small trial experiment of the initiative, the release of all the results throughout the trial to demonstrate openness, assessing the results, a little bit of tweaking, and then a final, full roll out. Another example, this time of innovation through partnership, is Pearson’s leveraging the IBM Watson platform to create more immersive learning for students.

It surprises us that few other big players are yet to follow suit at a time when innovation is essential and most big companies have to acquire small innovative companies to “fund” their R&D while driving inorganic growth in a never-ending quest for top-line performance north of our industry’s paltry 3% norm.

7) The Election Selection: Our top 10 wouldn’t be complete without mentioning Brexit, the US presidential election, the referendum that toppled the Italian government in early December, and a geopolitical atmosphere, at least in advanced economies, that reeks of anti-establishment insurgency. The odor and air of discontent is thick with upset while we also see pressure in South Korea and continued frustration with what’s perceived as governments out of control and no longer in touch with their constituency — all movements on steroids given today’s digital amplification. After a decade of stagnant growth, perceptions of cronyism, and the feeling that the populace has been left behind, the votes came in powered by social media and the instant spread of real and fake news. The result of these movements and their elections will have a lasting impact on everything from innovation, to jobs creation, to immigration, and, directly and indirectly, the information services that serve these causes.

8) China Exerts Its Might: Meanwhile, across the globe, China’s Social Credit System is no longer a Chinese government exercise under its Sesame Credit project. It is now an initiative slated to govern the country’s 1.4 billion people — nearly 19% of the world’s population. If proven effective, China’s Social Credit System could forever change the meaning of the word “credit.” It will not just be about trust in a person’s ability to manage finances, but in the individual’s ability to manage their life — how trustworthy (creditworthy) the person is as determined by everything he or she does. How it works or doesn’t, backlashes or not, it will have significant implications for the region, the globe, and the information businesses that participate in this “credit economy.” China’s crackdown on the media this year was also a sobering moment with effects felt through Apple’s supply chain and felt by media and information companies large and small.

9) BlockChain Evolves: Blockchain development has evolved from hype to reality, with $1.5 billion of investment committed globally in 2016. In financial services alone, the R3 consortium has over 70 global banks already committed to blockchain development to support areas of corporate, retail, and investment banking. Among them are some of the world’s largest banks: Citigroup, HSBC, and Credit Suisse have all completed successful tests. This growth momentum continues into areas of healthcare, legal, education, B2B, news/publishing, entertainment, and other media segments with blockchain protocols beginning to manage library repositories and rights management. We know some of the largest information providers have blockchain initiatives underway and believe we are a year or two away from mainstream adoption for select applications.

10) Disparity in Print: While we believe that new media never completely displaces old media and that print will remain retro-chic (sometimes there’s nothing like a good print magazine or book to curl up with), this year was the tipping point for print — at least in professional publishing and education. Marketers who moved the majority of their dollars to digital for the first time two years ago saw that uptake go mainstream as more and more voted with their dollars, creating more pressure on print publications, especially in news. Earlier this year, The Trinity Mirror attempted to launch a new UK national print paper, The New Day. Touted as a newspaper aimed at people who don’t buy newspapers, it closed within two months, proving not only the challenge with print but also the too often seen phenomenon of really missing a target market.

Meanwhile in the land of textbooks, the major publishers experienced a significant hit, with drops in certain revenue categories of up to 30%. Indeed the perception of a tipping point occurred this year in US higher education textbook sales, with disastrous revenue reports from all of the major players. It’s an indication that sometimes more isn’t more and pushing the market towards digital through a combination of high print pricing and innovative digital solutions can simply end up driving users away entirely. As with The New Day, it is not good to misunderstand or underestimate a target market. Library budgets continue to migrate much of their spend away from print, and in most sectors, it remains niche, but its prevailing days are finally over except in the realm of consumer books where indicators are showing that print still matters and is even outpacing e-books.

Why This Matters

The world is migrating through a digital frenzy and for many it’s run amok. But a year at a tipping point feels crazy and no one can deny 2016 was an unusual year, one that portends a new normal, and indicates that there will be more disruption and upheaval to come.

Change breeds opportunity as well as uncertainty, and we expect no shortage of new developments. This year, bots used IoT devices to nearly bring down the Internet, a self-driving car killed its first "driver," and drones evolved from toys to tools. Amazon delivered its first package by drone and opened a no-checkout-lines retail store. Machine learning and AI began creating social currency to offer people stuff to buy based on who they are, but we worry about our not too far from reality future where discrimination on price, changed insurance offerings, or increased mortgage rates occur as a result. Next, perhaps, even criminal sentences. Oh my.

This was the year emotion testing of video content went mainstream, and things like eye-tracking, facial coding, and biometrics were embedded into video launch decisions. On one hand, it reduces production costs. On another, it is downright freaky. We have facial recognition software, satellite imagery, cell phone location, and now the rise of voice-based search and home companions like Amazon’s Alexa powered hardware (Echo, Dot, Tap), Siri, or Google Home. It means even more technology doing for us what we used to do for ourselves (witness Nike’s self-tying shoes), but as Alexa listens for her name privacy concerns, founded or not, develop around whether she’s listening to our kitchen conversations.

And while platforms are influencing how we think and challenge some of our basic freedoms, it’s profoundly ironic that there was a backlash from consumers when it came time for our elections.

The martech-adtech feeding frenzy continued with accelerated deals: Salesforce and Krux; Neustar buying Marketshare; Time buying Viant; Zeta Interactive purchasing Acxiom’s martech business; Dentsu Aegic Network investing in Merkle; Vista Equity Partners bought Marketo; Neustar is going private. Suddenly, there is a feeding frenzy at the marketing trough. But this constant prodding, cajoling, and haranguing of people will break. Advertising is at a tipping point. For now, a reduction in the number of players is good for advertisers and publishers who sit on opposite ends of the digital ad pipe.

As of this writing, we continue to reflect on the Panama Papers scandal, which saw 11.5 million documents and 2.6 TB of data leaked from the email servers of Mossack Fonseca law firm, while we witness a debate unfold over Russia’s hacking of the DNC and its role in the US presidential election. Cyber warfare has, it seems, gone mainstream. Meanwhile, China’s seizure of an underwater drone didn’t last long, but reminds us that a battle for information continues not just in the cloud but also in our seas. We now know that the Yahoo! security breach is the biggest in history, putting pressure on the Verizon deal and cementing Marissa Meyer’s legacy and reputation forever. Security sucks. Privacy is gone, and the world has indeed tipped. To ward off the offenders or at least protect us from the now inevitable, private cyber insurance has now entered the market and our lexicon.

Interest rates went up in the US last week, with the Fed indicating three more bumps in the coming year. The Euro and Pound are almost at parity with the dollar, and while we watch stock markets rise, we wonder how well all of this will go down in next year’s economic cycle.

But sometimes, like little blades of grass sprouting just after a fire, like a phoenix rising from the ashes, hope spawns eternal, as we watch companies emerge in this industry. That’s what keeps us going. Whether the eight who presented at Outsell’s Emerging Company Growth Tank (Quorum, Peachjar, MatchDeck, Unbound Concepts, Ubiquity Press, Versium, Quintype, and Etsimo), or the launch of BioBeyond, we’re seeing digital solutions designed from digital principles from the ground up.

And how exciting. Digital Science invested in, and the molecular science laboratory went virtual, offering cheaper, quicker, more rapidly repeatable experimentation in the cloud. The revenue rate at passed $300 million after 15 years of solution-based trading, demonstrating that business-of-law businesses are on course to outgrow information-for-lawyers businesses. Indeed our industry is at a tipping point, and the emerging companies who rise each year brighten our eyes and make us optimistic that what’s on the other side of all this insanity is pretty darn cool.

Editor's note: This is our final Insight for the year. We'll resume publishing again on January 4, 2017. We wish you and your loved ones a peaceful, joyful holiday season and all the best for the New Year.